Law: Income Tax Act, 1922

Section: 10,10(2)(xvi)

Income-tax Act (XI of 1922)---S. 10 (2)(xvi)-Business expenditure--Licensing agreement with foreign company for collaboration in manufacture of for know-how paid to foreign Company-Held, not an capital nature but business expenditure. C. I. T. v. Ciba of India Ltd. (1968) 691 T R 692 (S C) ref. JUDGMENT ISMAIL, J. -The Income-tax Appellate Tribunal, Madras Bench, under section 265(1) of the Income-tax Act, 1961, has referred the following question of law for the opinion of this Court: "Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that payments made to Seymour for technical service fees in the sum of Rs. 3,333 for the assessment year 1963-64, Rs. 9,575 for each of the assessment years 19:4-65 and 1965-66, Rs. 9,570 for the assessment year ll16fj-67 and Rs. 9,585 for the assessment year 1967-68 were not admissible as a deduction? The assessee was incorporated as a company mainly with the object of carrying on the business of one-day alarm clocks. Clocks bearing the trade marks "West Clox". "Ben" and "Big Ben" are manufactured by Messrs General Time Corporation of U. S. A. Messrs L.D. Seymour, New York (hereinafter referred to as "Seymour"), was the agent of Messrs General Time Corporation of V. S. A. A representative of the assessee entered into negotiations with Seymour in U.S.A some time in January 1959, and an oral agreement was reached between them on 29th January 1959. This was followed by an agreement between Seymour and the assessee for the collaboration which is described as "Heads of agreements" and which is dated New York, 7th January 1960. Seymour agreed under the agreement to pass on to the assessee certain technical know-how to enable them to manufacture one- day alarm clocks in India and the assessee agreed to pay a sum of Rs. 75,000 or $15,000 in instalments spread over five years. There were also other clauses sander which certain other payments such as royalty at 5% of the sale price of prod: were to be made by the assessee to Seymour in consideration of certain facilities and supply of tools and dies, technical knowledge, information advice, etc. The assessee required the approval of the…

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